The Government Accountability Office (GAO) recently released a new report that addresses the complex financial structures of New Markets Tax Credit (NMTC) transactions. The report questions whether combining multiple federal, state, or local subsidies is unnecessarily duplicative and whether the complexity of such structures are masking higher rates of return for NMTC investors. The report suggests that an estimated 62 percent of NMTC projects receive other government assistance but does accurately note that combining public financing from multiple sources can fund projects that otherwise would not be viable. In addition, the GAO argues that while the Internal Revenue Service (IRS) issued guidance about allowable financial structures in the early years of the NMTC program, guidance has not been updated to reflect the subsequent growth in complexity nor are there controls in place to limit the risk of unnecessary duplication in government subsidies or above market rates of returns.
In the report, the GAO recommends IRS issue further guidance on how other government subsidies can be combined with NMTCs; ensure adequate controls to limit the risks of unnecessary duplication and above-market rates of return; and ensure that more complete and accurate data are collected on fees and costs, the equity remaining in the business after 7 years, and loan performance.
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